Mandatory Disclosure in Corporate Debt Restructuring via Schemes of Arrangement: A Comparative Approach

Abstract

Creditors often face significant information asymmetry when debtor companies seek to restructure their debts. In the United Kingdom, it is mandatory for debtor companies, seeking to invoke the courts’ jurisdiction to restructure their debts via schemes of arrangement (schemes), to disclose material information in the explanatory statement to enable the creditors to make an informed decision as to how to exercise their votes in creditors’ meetings.

The English schemes have been transplanted into common law jurisdictions in Asia, including Hong Kong and Singapore. However, due to the differences in the shareholding structures and the kinds of debts that are sought to be restructured in the UK and Hong Kong/Singapore, this transplantation gives rise to the question as to whether information asymmetry is in fact adequately addressed in the scheme process. Drawing from the experiences of Hong Kong and Singapore, we argue that there are three principal concerns in the current disclosure regimes: how debtors disclose the liquidation analysis or alternative to restructuring via schemes; how debtors disclose advisors’ fees; and the equality of provision of information in the scheme process.